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September 17, 2012 8:52 AM
September 17, 2012 8:52 AM
Enough Already!
It’s high time that the debate of food vs. fuel subsided. It’s also time for the government to stop meddling in policies that fan this fire.
I understand that as a nation our “food security” is perhaps the single largest trade leverage that we have. I also do not advocate sending any more money to the Middle East for oil than we absolutely have to. With this, I do believe that it is important to promote U.S. businesses to produce as much energy as possible. But more importantly, I believe this energy needs to be produced in a free market, without mandates and unnecessary subsidization.
The livestock industry, which I might add, is critically important to our economy and well being, is somewhat stuck in a $2.00 corn mentality. For many years livestock producers operated without the fear of price volatility in their inputs. As an industry, we took this security (and profitability) for granted. We have now entered into wildly volatile era and $2.00 corn isn’t the case anymore. Will we ever see $2.00 corn again? Maybe, but it will come on the heels of great technological advancements in production, or a huge game-changing decrease in demand. So what are we waiting for? Why not explore other options to increase stocking rates through intensive grazing? Or explore more ways to make alternative resources more utilizable to a pig? Why not pinpoint the inefficiencies in the overall model and intensively manage to overcome them? The fact of the matter is, the livestock industry would rather focus their efforts on ridding the world of ethanol, as opposed to creating innovative solutions to be profitable in an era when corn is expensive.
On the other hand, ethanol is no longer an industry struggling to break out of its infancy. The support structures that were put in place initially to aid a fledgling industry have long overrun their course. Poor business planning and market volatility has all but weeded out the smaller, farmer owned, cooperative ethanol plants that were an attempt by local corn growers to add value to their corn. Repeated insolvencies and improper risk management by the initial wave of ethanol plant owners have led to an industry dominated by oil companies and major agricultural conglomerates…they don’t need mandated support to prop up their businesses. They will produce and blend ethanol as long as economically feasible as a part of their long term business plan.
It is certainly time to put these two industries on a level playing field and let the strong survive. But policy makers need to have caution on when, how, and what the ramifications will be when the field is leveled up.
Coming off of the worst drought in decades, perhaps the single greatest risk of policy change to corn producers is right around the corner.
Release the mandate…just not in October
Most analysts seem to be in agreement that a release of the biofuels mandate will not have a large impact on the price of commodities (namely corn) through the 2012-2013 marketing year. However, in a somewhat stranded market that is seeking solid information (God knows the recent USDA data hasn’t provided any real stable footing!), news of this release during the wrong month could create enough short-term panic in the marketplace to drastically impact a 30 day price average.
Who would ever lobby your elected officials to release such a mandate during a price averaging period? Perhaps companies facing the largest anticipated payout in the history of the business, payouts that could negate 40 years of gains. Did someone say crop insurance providers?
In today’s volatile markets it is not unrealistic to believe that an announcement such as this could affect the corn market by as much as $1.00-1.50/bu in the short term. Ironically, by the time the market regained the short-term set back, the fall crop insurance pricing period will be over and insurance companies will be laughing all the way to the bank. What could this mean to the producer? Let’s do the math for a good producer with 1500 acres:
From the crop insurance industry’s standpoint we’ll tame the number down, realizing that a 180 bushel proven yield is high for most areas. If one uses the predicted national average of 122 bushels, relative to the initial prediction of 166 bushels/acre…((166 bu x 85%)-122) x $1.50= $28.65/acre x 95 million corn acres=$2.7 billion in saved payouts. Where I come from that’s a lot of jack! Enough to buy the Yankees! And certainly enough to pull in some lobbyists (which really are just glorified prostitutes), dress them up in suits, and place them directly underneath your legislator’s desk. But hey, we are talking about Washington…What else is new?
The Wrap Up:
With changes in policy on the horizon, it will be increasingly important for both producers of grain and livestock to understand the implications of those changes. Weigh the risk and reward associated with this, and position your operation to be protected from, or ready to capitalize on the change.
As for food vs. fuel: What both the livestock and biofuels industries need to realize is that what is growing in the fields of the Midwest is not “their” corn; it’s not their “feedstuff” or their “feedstock”. What is growing in the field is strictly energy, and whether that energy goes to fuel animals or automobiles, that energy is for sale to the highest bidder.
Somebody get me some water…cuz we got a fire!
Editor's Note:
Rob Rudolphi resides in Eastern Iowa with his lovely wife Tara, where he is involved in varying facets of several agricultural businesses. They currently have no kids, no dogs, and certainly no cats, and are generally up for anything involving a good time!
Rob Rudolphi resides in Eastern Iowa with his lovely wife Tara, where he is involved in varying facets of several agricultural businesses. They currently have no kids, no dogs, and certainly no cats, and are generally up for anything involving a good time!
The mission of the column is to advocate agriculture, entertain (provided that you are entertainable), serve as a catalyst for critical thinking, and challenge the status quo amongst the agricultural community.
If you have a idea that would make a good "Burn Topic" for next month's Rudolphi's Burning column, please email the idea to prburmeister@gmail.com All entries will remain anonymous.
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